Buy Silver in New Zealand – Why is it More Expensive?

Why is it More Expensive to Buy Silver in New Zealand?

In the past premiums (i.e. the mark up) above the spot price of silver have been 20% and even as high as 30% in New Zealand. While premiums above spot price have reduced on silver over recent years, silver in New Zealand is still generally a little more expensive than the equivalent product overseas.

So, Why is Poor Mans Gold More Expensive in New Zealand?

Why is silver more expensive in New Zealand?

There are a couple of reasons. Firstly while silver is mined here in New Zealand most of it is shipped overseas to be refined into pure silver. Take the well known Newmont gold and silver mine in Waihi for instance. 20 kg Doré bullion bars (bars containing anywhere from 75-90% silver and 10-25% gold) are shipped to the Perth Mint in Western Australia. There these doré are further refined and separated into pure gold and silver bullion bars. These are then sent to the international market.

This means a great deal of the silver demand in New Zealand is supplied by purchasing silver in the international markets and shipping it back to NZ. This is where the high cost comes in. Silver is only about half the density of gold so takes up a greater volume per equal weight.

So Here’s Where Geography Comes Into Play

Our isolation from the rest of the world means silver has to be shipped quite a distance and because it is relatively bulky it makes for high shipping costs. And with high shipping costs also comes high insurance costs. A boatload of silver bullion is worth, well a boatload of silver! And the insurance companies charge a high sum to cover the potential for loss.

But even more importantly silver is not called poor mans gold for nothing as the current price per ounce of silver is only about US$14.50 versus US$1222 for gold. You can buy a large amount of silver for the price of one ounce of gold (83 ounces to be precise at the current prices). But this also means that a comparable amount of silver purely in terms of dollars, will both weigh a lot and take up a lot of space. So again freight and insurance is much, much more than for gold.

So this difference in volume and weight compared to value is a key factor in the higher premiums charged for silver making silver more expensive to buy compared to gold in New Zealand.

The precious metals markets in N.Z. are also pretty small compared to elsewhere in the world. There isn’t (unfortunately we reckon) the demand that there is in say India, the Middle East, China, or even the USA and Europe. So less demand often means less competition which will usually translate to higher prices compared to areas where the markets are more developed. Although this has changed since we first wrote about this topic in 2010. With much more competition in the precious metals market in New Zealand resulting in lower premiums and prices on silver compared to 10 years ago.

However Even Overseas, Silver Still Sells For a Higher Margin Compared to Gold

So why is this?

The simplest explanation is that it is a reflection of the greater “work” that goes into fabricating silver in proportion to its value compared to gold. That is, the premium includes a fabrication cost and it takes about the same amount of man hours to fabricate an ounce of silver as an ounce of gold, but the silver costs much less (83 times less currently) when it is sold. Therefore the premium as a percentage of silvers price is higher.

But Silver May Have More Upside Than Gold

There is an argument to be made that any higher margins when buying silver, may well be made up for by the potential gains in silver being even greater than gold. Just a few of the reasons often sited include:

1) Silver still to reach previous highs.

Gold has well and truly surpassed its nominal high from 1980 of US$850 whereas the price of silver is still someway off its 1980 high of US$50, when the Hunt brothers had basically cornered the silver market. Some would argue that these prices were “bubble-like” and not fair comparisons. However the likelihood is that gold and silver will eventually reach bubble prices again in this bull cycle. A general rule is prices usually make extremes in either direction at the start and end of a cycle.

2) Silver has even further to reach inflation adjusted highs.

Gold has to rise to US$2420 to reach its inflation adjusted 1980 high of US$850. i.e. about double from here. Silver has even further to go needing to reach US$117 to match it’s inflation adjusted 1980 high of US$50. About 8 times higher than now.

3) The gold silver ratio is currently way above long term historical norms.

The Gold Silver ratio is simply the amount of ounces of silver you can buy with one ounce of gold. Currently it stands at 83:1. In the last 25 years it’s been as high as 100:1 and as low as 38:1. The long term ratio (we’re talking hundreds of years here) is about 16:1. The same as the ratio of silver to gold in the ground. At the end of the last bull market in precious metals the ratio reached 16. If it was to reach 16 again silver would have to rise significantly from here comparatively to gold. Even to reach the higher level of 30 would still be a large increase.

4) Silver is being used up?

There is also the somewhat contentious argument that as silver has many more industrial uses than gold, that silver is being used up. Whereas pretty much all the above ground gold ever mined still exists today. So the theory is that the silver supply is steadily diminishing. Versus the gold supply which slowly rises every year.

However this greater industrial demand is a doubled edged sword as this makes silver even more volatile than gold. It reacts even more to changes in the global economy.

Is Now a Good Time to Buy Silver?

So – silver is not for the faint hearted. Buying physical silver is not a short term investment. But rather a long term speculation on the end of paper money. Or perhaps a better way to look at it is as financial insurance that also potentially has high upside.

Buying when the price has risen and getting close to previous highs is generally not the way to operate in the precious metals markets. However that is not the case with silver right now.

So it could make now a decent time to buy.

Our theory, like with gold, is to buy regularly to get a good overall price. As trying to time the lows in the gold and silver markets is very difficult to do.

We are getting more questions on how to buy silver in NZ. This could well be evidence that “poor mans gold” may soon begin to play catch up with gold’s greater gains of the past decade. We are also hearing people say “I can’t afford gold at the moment so might just buy some silver instead.” If gold continues to rise there will likely be more and more people the world over adopting this approach.

If you’d like to know how to buy silver in NZ for less, then visit the link below to learn how to get a quote…

Editors note: This article was first published, 24 September 2010. Updated 23 October 2018 to include latest prices, changes in premiums. Along with the fact silver is now cheaper in New Zealand than it was in 2010.

8 thoughts on “Buy Silver in New Zealand – Why is it More Expensive?”

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